Patents in India are granted to encourage inventions and to secure that it is worked on a commercial scale. The Indian Patent Act ensures that a Patentee should not be able to enjoy a monopoly for the importation of the patented article. The Patent Act provides measures by way of compulsory licensing (CL) to ensure that the patents do not impede the protection of public health and nutrition and the patent rights are not abused by the patentee. The CL therefore serves to strike balance between two disparate objectives- rewarding patentees for their invention and making the patented products, particularly pharmaceutical products, available to large population in developing and under developed countries at cheaper and affordable cost.

As is known, CLs allow third parties to exploit a patented invention without the consent of the patentee. They there, deprive patentees of their most important right, i.e. the right to say ‘no’ to the exploitation of their invention by the third parties. CLs are usually granted through administrative procedures managed by a governmental body. CLs are granted by governments which, thereby, substitute their authority for the consent of the patent owner. They are, therefore, in the nature of administrative contracts.

On March 9, 2012, India’s first CL was granted by the Patent Office to Natco Pharrma Ltd. for producing generic version of Bayer Corporation’s patented medicine Nexavar, used in the treatment of Liver and Kidney cancers. The Controller decided Bayer on all the three grounds in the Patents Act for the grant of CL (reasonably requirements of the public not being satisfied; non-availability to the public at a reasonably affordable price, and the patented invention not being worked in the territory of India).. Among other important terms and condition of the non-assignable, non-exclusive license were directions to Natco to manufacture the patented drug only at their own manufacturing facility, selling the drug only within the Indian Territory and supplying the patented drug to at least 600 needy and deserving patients per year free of cost.

Aggrieved by the Controller’s decision, Bayer immediately moved to the Intellectual Property Appellate Board (IPAB) alleging that the grant of CL was illegal and unsustainable. On March 4, 2013, IPAB upheld the country’s first compulsory license to a pharmaceutical product. Specifically, the decision upheld a compulsory license issued to Natco Pharma Ltd., an Indian generic drug manufacturer, to sell Bayer’s patented chemotherapy drug Nexavar (sorafenib tosylate). The Board rejected Bayer’s appeal holding that if stay was granted, it would definitely jeopardize the interest of the public who need the drug at the later stage of the disease. It further held that the right of access to affordable medicine was as much a matter of right to dignity of the patients.

A compulsory license is a statutorily created license that allows certain parties to use or manufacture a product encompassed by the claims of a patent without the permission of the patent owner (patentee) in exchange for a specified royalty. The Indian Patent Act (Act) contains very broad compulsory licensing provisions. The two provisions of the Act that allow for compulsory licenses are Sections 84 and 92.

Grant of Compulsory License due to ‘Non-Working/Unaffordable Prices of Patented Article’: Section 84

Under Section 84, the Controller of Patents can issue a compulsory license three (3) years after the issuance of a patent if one of the following conditions is met:

1. The reasonable requirements of the public with respect to the patented invention have not been satisfied; or
2. The patented invention is not available to the public at a reasonable price; or
3. The patented invention is not worked in India.

Section 83 of the Patent implies that the working of the patent cannot be taken to include ‘imports’. The patentee cannot hold the patent in India and import the product from another country, thereby compelling the Indian consumer to pay an excessive price.

Public Accommodation:

The Act contains a list of circumstances in which the “reasonable requirements of the public” will be considered not met. These are:

1. The patentee does not grant a license on “reasonable terms” thereby causing: (a) a disadvantage to a trade or industry or the development or establishment of an industry in India; (b) demand for the patented product not to be sufficiently met or available on reasonable terms; (c) insufficient supply or development of a market in India for the exportation of the patented article; or (d) a disadvantage in the establishment or development of commercial activities in India.

2. The patentee imposes conditions with respect to the grant of license, sale or use of a patented product or process, the manufacture, use or sale of non-patented materials or the establishment or development of any trade or industry in India, which is prejudiced.

3. The patentee includes one or more of the following conditions in a license: (a) an exclusive grant-back clause for any improvements developed by the licensee on the patented product or process; (b) a clause prohibiting the licensee from challenging the validity of the licensed patent(s); or (c) a clause that is essentially a “coercive” package license (namely, requires the licensee to purchase non-patented items from the patentee as a condition of the license).

4. The patentee does not work the patented invention in India to the fullest extent possible or on a commercial scale to an adequate extent.

5. The working of the patented invention on a commercial scale in India is being prevented or hindered as a result of the importation of the patented invention by: (a) the patentee or a person authorized by him; (b) persons purchasing from the patentee, either directly or indirectly; or (c) the infringement of the patent by a third party against whom the patentee is not taking or has not taken any action to eliminate the said infringement.

Reasonable Price:

With respect to the patented invention not being available to the public at a reasonable price, a compulsory license will be granted if a patented invention is not being made available to the public at an affordable price. For example, Bayer was selling Nexavar® for about Rs 280,000 (around US $5,160) per month compared to Natco selling the drug for about Rs 8,800 (around US $162) per month.

Worked in India:

With respect to a patented invention being worked in India, a compulsory license will be granted if the patented invention is not worked in India. An invention is considered to be “commercially worked” in India if the patented invention is: (a) manufactured in India; (b) imported into India; (c) licensed and forms a part of a product that is sold in India; or (d) commercialized in India in any other manner.

Interested Person:

Any person interested may file an application for a compulsory license in the Indian Patent Office three years after the grant date of a patent. A “person interested” is interpreted broadly under the Act and includes a licensee of patent for which a compulsory license is sought. The application must include the nature of the interest of the party filing for the license, the facts supporting the application and license conditions (royalty rates, etc.) the applicant is willing to accept.

Controller Review

The Controller will review the application and if satisfied that a prima facie case has been made, will affirm that the applicant met the requirements to grant the license, will send a copy of the application to the patentee or any other person having an interest in the patent. The application for the compulsory license will be published in the official journal of patents.

Within two months of publication in the official journal, the patentee (or any other person) may file a notice of opposition opposing the application. The notice of opposition must state the grounds of the opposition, the terms and conditions of a license that would be acceptable to the opponent and any evidence necessary to support the opposition. A copy of the notice of opposition is provided to the applicant for the compulsory license. A hearing is conducted during which both parties will have the right to be heard. After each party is heard, the Controller will make his/her decision on the compulsory license.

If after the Controller’s review of the application he/she is not satisfied that a prima facie case has been made, he/she will notify the applicant. The applicant may then request a hearing within one (1) month from the date of such notification. If the applicant does not request a hearing, the application for a compulsory license will be refused. If the applicant files a request for a hearing, a hearing will be conducted and after hearing, the Controller will make a decision on whether or not to allow or refuse the compulsory license. If the Controller decides to allow the compulsory license, the patentee or other person having an interest in the patent will be notified and the procedure described above will be followed.

After deciding to grant a compulsory license, the Controller will determine the terms and conditions of the license. For example, in the case involving Nexavar®, a non-exclusive, non-assignable license was given Natco. In addition, the Controller initially awarded Bayer a royalty of per cent for sales of Nexavar® by Natco. The IPAB increased this royalty to 7 per cent.

Section 92

Under Section 92 of the Act, compulsory licenses can be granted on notification by Central Government:

1. In a case of a national emergency (including a public health crisis), extreme urgency or in the event of public non-commercial use; (Section 92(1)); or

2. For export (Section 92A(1)).

Emergency:

With respect to compulsory licenses granted as a result of national emergency, extreme urgency or as a result of public non-commercial use, such licenses are published by Central Government in the official gazette. Once these licenses are published, the Controller will grant a compulsory license to any interested person who applies for such a license. The granting of compulsory licenses under section 92(1) cannot be challenged by the patentee either through an opposition proceeding or in court. However, the Controller is required to notify the patentee of the granting of the compulsory license under this section.

Grant of Compulsory License for the Export of Pharmaceutical Products:

Article 31 (f) of the TRIPS Agreement undermined the need for the availability of medicines to the countries having less or no manufacturing capacity through importation from other countries. WTO adopted a mechanism to resolve this problem by implementing Para 6 of the Doha Declaration on the TRIPS Agreement and Public Health on August 30, 2003. Obligation under Art 31 (f) of the TRIPS Agreement was thus waived off in case of export of pharmaceutical products to the countries having least or no manufacturing capacity provided the eligible members has made a notification to the Council for TRIPS.

The Indian Patent Act was thus amended on January1, 2005 and Section 92 (A) was incorporated for grant of CL for export of pharmaceutical products in certain exceptional circumstances. The CL under the said section can only be granted if the importing country has also granted CL or has, by notification or otherwise, allowed importation of the patented pharmaceutical product from India. This condition is not applicable for least developed countries (LCD) having no patent regime. The LCDs is only required to notify the Council of WTO about their willingness to import the Pharma product subject to Para 6 of the Doha Declaration.

Export:

With respect to compulsory licenses granted for export, such licenses may be granted for the manufacture and export of patented pharmaceutical products to any country having insufficient or no manufacturing capacity in the pharmaceutical area relevant to the patented pharmaceutical product in order to address “public health problems”. Compulsory licenses will only be granted under Section 92A(1) if the country experiencing the “public health problems” has already granted a compulsory license for the patented pharmaceutical product at issue or if the Government of that country has provided notice in the country’s Official Gazette, with respect to the pharmaceutical patented product to be imported from India.

In these instances, the Controller will grant a compulsory license to an applicant on certain terms and conditions (which will be published) and only for manufacture and export of the patented pharmaceutical product to the country in question. The Controller will also determine the compensation to be paid to the patentee.

License Revision and Termination

Twelve months after the licensee has worked the invention on a commercial scale, the licensee of a compulsory license may make an application to revise the terms and conditions of the license on the ground that the terms and conditions settled upon have proven to be more onerous than originally expected and as a consequence thereof, the licensee is unable to work the invention except at a loss. The application must include facts and evidence to support the application as well as the remedy or relief sought by the license holder. The license holder may request a hearing.

The Controller will review the application and after the hearing, will grant or deny the application. If the application is granted, the Controller will revise the terms and conditions of the compulsory license. However, such an application for revision of a compulsory license shall not be entertained more than once. Given that Bayer received a 1 per cent increase in the royalty rate by IPAB, it will be interesting to see if after one year Natco will attempt to have the royalty rate reduced back to 6per cent.

A compulsory license can be terminated if the circumstances under which the license was granted no longer exist and are not likely to recur. The patentee (or another party in interest) may filed an application in the Indian Patent Office with supporting evidence requesting that the compulsory license be terminated. The compulsory license holder will be provided with a copy of the application and has a period of one (1) month from the date of receipt of the application to object to the application.

If the license holder objects to the application, he/she must notify the patentee (or other interested party) and the Controller of his/her objection. After receipt of such an objection, the Controller will hold a hearing and decide the application based on the facts and evidence submitted by the parties. If the Controller decides to terminate the compulsory license, he shall issue an order providing the terms and conditions of such termination and serve copies of the order on both the licensee and compulsory license holder.

Compulsory Licenses in India

As mentioned above, the IPAB upheld the compulsory license to Nexavar on March 4, 2013, which was originally granted by the Controller in March 2012. The issue of compulsory licenses in India is something that every company should be concerned about when procuring patents and conducting business in India. While most of the recent attention has centered on compulsory licenses for patented pharmaceutical products, it is important to remember that India’s Patent Act provides for broad compulsory license provisions that are not limited to just pharmaceutical products but encompass products from any technology.

The author serves as Assistant Professor of Law at National Law University Jodhpur. He is a highly qualified, skilled, hard-working and dedicated legal academician possessing around eight years of professional experience at widely acclaimed academic/research institutions and think-tanks in India in various capacities. At NLU Jodhpur, he has been teaching Public International Law, International Trade/WTO Law, IPR Law, TRIPS/International Intellectual Property Law &Policy and Cyber/Internet Law both at undergraduate and post-graduates levels since September 2010. His academic interests lie in Contemporary issues in Public International Law, International Trade/WTO Law, IPR Law, Trade & Environment, International Economic Law, International Environmental & Sustainable Development Law, Corporate Law & Governance Constitutional Law and Labour Laws.. Before joining NLU Jodhpur, he has worked at some of the highly acclaimed Institutions in India viz. ISIL, IIPA, IILM Institute for Higher Education, ICRIER, MMTC/MoCI based in New Delhi/NCR in various Research and Consultancy positions. . He has many research publications in reputed Journals/Periodicals of National & International importance.. He is an Indian Member of the IUCN Commission on Environmental Law (CEL). He is Associate Member, Indian Society of International Law, New Delhi. He serves as a member of few Specialists Groups functioning under the auspices of IUCN CEL, viz, International Water Law and energy law and climate change

(Email: amit.nluj@gmail.com, amit.singh@nlujodhpur.ac.in)